The 4 rules to know before lending money to a family member – according to a South African bank

It’s important to set clear rules when lending money to family members as there’s always a risk that because of the family connection repaying may be deemed unnecessary, according to Eunice Sibiya, head of consumer education at FNB.

“Before making funds available to a family member, always make sure that helping out will not severely compromise your financial position,” said Sibiya.

“If you need to take a loan to help them, it’s important to budget so you ensure that you can afford the repayments and use a trusted credit provider that will not charge you far more on interest than what the law prescribes.”

“Similarly, if you decide to use your credit card to help, you must be able to afford the monthly instalments regardless of whether your family member pays you back or not.”

The last thing you want is to default on your own commitments,” she said.

Sibiya shared some of the most important factors to consider when lending money to family:

Lend what you can afford

While you might see the need to help a family member who is in great financial need, you must be careful not to lend more than you can afford.

Even though a reputable credit provider such as a bank will do proper affordability assessments before giving you a loan, the fact that you are the one taking out the loan means you are the one responsible for the repayments.

Set clear rules from the beginning

Lending money to family may be a good gesture; however it must be done within a set of rules to ensure that commitments are honoured while preserving the relationship.

Prior to handing over money to a family member, both parties must agree on a repayment plan and commit to it.

Learn to say “no”

If you feel that lending your family money will do more harm than good, be honest with your family in order to save your relationship.

Sometimes saying no when your family borrows money may be the best way to keep harmony.

You offer them an easy way out

When you constantly lend your family money whenever they are not able to make ends meets, you are giving them an easy way out instead of encouraging them to work through their financial challenges.